Last week we wrote an article on The New York Times Company (NYT) and highlighted a sanguine view of the company based on a 25% upside scenario driven by its online business, which we feel will benefit from the increasing use of mobile devices and influence of social media. Today we take a look at the difficulties facing its print advertising and circulation segments that represent about 28% and 32% of our Trefis $8.46 price estimate, respectively.
Falling print ad dollars and lower circulation creates a one, two punch that NYT will have to overcome.
1) Print Ad Business in Decline
We forecast that the US newspaper print advertising market for national scale publications like the NY Times or Wall Street Journal, owned by News Corp (NWSA), will decline from around $4.4 billion in 2009 to around $3 billion by the end of Trefis forecast. Due to these macro headwinds, NYT’s stock could continue to struggle.
According to the management, newspaper print advertising sales declined in Q3 2010 from decreased advertising from healthcare, live entertainment industry and cable companies when compared with Q3 2009. NYT’s retail and classified ad business also declined due to a weakness in automotive, real estate and recruitment categories.
If this business declines at a faster pace to $3.5 billion during the forecast period, this takes just under 6% off of our price estimate.
2) Falling Circulation
NYT’s daily and weekend circulation has declined at a rapid rate in the past and is expected to decline further. Growing preference for reading news online is enabling users to avoid newspaper subscriptions.
Online news not only provides a cheaper source for reading news, but also provides real time information, which print newspapers fail to provide. The declining circulation will mean that the print advertising rates will continue to decline, which will mean that the overall newspaper print advertising market will continue to suffer.
We estimate that NYT’s daily circulation will continue to decline from around 980,000 million in 2009 to around 685,000 by the end of Trefis forecast period. If this falls to 600,000, this chips about 3% off our price estimate.
Disclosure: No position